Which of the Following Statements Is FALSE

question 92

Multiple Choice

Which of the following statements is FALSE?

• A)A portfolio is efficient if it has the highest possible Sharpe ratio;that is,it is efficient if it provides the largest increase in expected return possible for a given increase in volatility.
• B)The required return for an investment is equal to a risk premium that is equal to the risk premium of the investor's current portfolio scaled by .
• C)Increasing the investment in investment i will increase the Sharpe ratio of portfolio P if its expected return E[Ri] exceeds the required return ri,which is given by ri = rf + × (E[Rp] - rf).
• D)If security i's expected return is less than the required return ri,we should reduce our holding of security i.

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Definitions:

Low Beta Portfolios

Investment portfolios comprised of assets that have lower volatility and are less sensitive to market movements compared to the broader market.

Security Market Line

A line in the capital asset pricing model (CAPM) that depicts the relationship between the expected return of an investment and its risk.

Return and Risk-Free Rate

The difference between the total return on an investment and the risk-free rate of return, indicating the excess compensation for taking on risk.

Beta

An assessment of how much a security fluctuates in comparison to the general market.